Orion Mortgage, Inc. | 303-469-1254
One of the most common questions we get is “How much can I qualify for?” I consider this a very dangerous question because it assumes if the borrower can “qualify” for the loan, they can easily make the payments. In fact, the “qualification” system is set based on the assumption that the borrower knows how much they can afford and will take responsibility for making the payments.
Although I have not had any communication explaining the specific thought process behind the automated approval system, years of dealing with loan files allows me to make some reasonable guesses. Top of the list is that a significant number of borrowers have income that is not documentable for loan purposes. Examples might be investment income, rental income, royalty income, overtime, self employment, or boarder income without the required history showing on a tax return .
Another reason is that the United States has been blessed with steadily rising income for several decades. Some of this is due to inflation. Some is due to real wage gains. In either case, the future ability to make payments has steadily risen. Absent inflation, this may not be as true in the future.
What we see is the allowable debt to income ratios being reduced in an effort to reduce the number of defaults. Issues such as payment shock (the amount of payment increase) are being evaluated more carefully. Even with these changes, we still recommend the borrower carefully evaluate their maximum payment separate from what can be approved.
For first time buyers, we recommend starting the budget process with the amount the buyer is currently paying in rent. Add the amount going to savings each month, and subtract the average monthly increase in debts over the last year. A good way to determine average savings is to compare total debts and total savings a year ago with today’s numbers. If today’s total savings are higher than the year ago total, divide the change in savings by 12 to get a monthly number to be added to the rent. If today’s debts are lower than the total debts a year ago, it indicates savings going to pay down debt. Take the change over the year, divide the number by 12 and add it to the rent to get a sustainable housing payment. Similarly, subtract the numbers if today’s debts are higher or savings lower than a year ago. This number will result in an upper limit on the amount of money available for a house payment.
The above amount should be adjusted to account for expenses currently paid by the landlord such as the water bill, lawn maintenance, and building maintenance. Moving into a home often means buying additional furniture, or decorating items such as drapes or paint. Depending on the property, additional tools or equipment such as a lawn mower may be required. It is not uncommon for the same life changes causing the move to a new home to also result in the purchase of one or more new vehicles. These expenses add up and will be in addition to the house payment. Having room for these expenses in the budget will increase your ability to enjoy your new home. Conversely, if all available money is committed to the house payment, the stress of making the payments can take the joy out of owning your new home.
When setting the down payment budget, don’t forget about closing cost requirements (often about 3% of the purchase price), and moving expenses. In some cases, it is possible to negotiate a purchase price with the seller paying the closing costs. The agents we recommend all know how to negotiate this.
Call Don at 303-469-1254 with your desired monthly payment and down payment. He will be happy to calculate the price of the home that fits your budget, including estimated taxes, insurance, and HOA dues. This is a good place to start when requesting a loan pre-approval. By getting the loan in place first, you can shop for a home knowing that as long as the price is below the budget, the down payment and monthly payments will fit within the budget.
For repeat buyers, the process is the same as the above, except it is necessary to estimate the amount of cash available from the sale of the old home. While the real costs may be less, we recommend starting with a close estimate of the selling price. Reduce this price by 10% and subtract the current loan balance. The 10% is intended to cover seller’s closing costs, real estate commissions or owner’s marketing expense, negotiating concessions, and other expenses of sale. Preparing the home for market, repairs, and moving expenses will be additional. Call Don if you would like some quick ways to estimate the value of your home.
Don Opeka – President
Licensed Colorado Mortgage Loan Originator MB100007878
Colorado Certified Mortgage Broker
Orion Mortgage, Inc.
10560 Wadsworth Blvd.
Broomfield, CO 80021
303-469-1254
800-404-0453
www.OrionMortgage.net
Don@OrionMortgageInc.com
Check the license status of any Colorado mortgage loan originator at http://eservices.psiexams.com/crec/search.jsp
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Analysis Reveals a Different Market Dynamic in Each Real Estate Price Range- Jim Smith, 07/02/09, YourHub.com
It has been obvious to all of us for quite a while now that lower priced homes are selling much faster than higher-priced homes, so I figured it was high time to do some statistical analysis. Here is what I discovered . . .(Click here to read more)
The analysis is interesting, but no surprise for someone in the mortgage business. Your numbers track with what I see.
1. The market today is dominated by people who do not have to sell a home. The move up buyer is largely out of the market because of lack of appreciation in the old home. If the old home is not appreciating, there is no equity to transfer to a new home.
2. Financing is readily available to buy a home with a mortgage up to $417,000 in Jefferson County. If a larger loan is required, they are more expensive, require more down payment, and harder to get. This correlates with your observation that homes below $400,000 are selling well, and as the price goes above $400,000, sales slow dramatically.
3. In the past, upper priced homes were often financed with various Option ARM and Alt-A products. There were many reasons, but today these products are gone from the market. When a borrower with perfect credit, almost $7,000/month in taxable income, and about $1,000,000 in liquid assets is turned down for a $210,000 loan on a $700,000 home as happened to me in June, you will have trouble selling higher priced homes. Credit the government with protecting borrowers from predatory lenders. While the government is protecting the borrowers, you must look for cash buyers.
4. With the elimination of Option ARM products, the higher pricing of Interest Only products, and generally more difficult qualifying requirements for all adjustable rate products, financing houses requires up to double the income compared to what was required for the same loan size a few years ago. This means that people who could buy a few years ago cannot qualify for the same size loan today even though interest rates are lower.
With the above affecting your buyers, it is no surprise that high end homes are selling slowly. FHA and VA financing are readily available for the lower priced homes with low down payments, so they are selling well. It just demonstrates how availability of financing affects sales of homes.
Thank you for the opportunity to be of service. Don’t hesitate to call us if you have additional questions, or if we can be of service in any other way.
Don Opeka – President
Licensed Colorado Mortgage Loan Originator MB100007878
Colorado Certified Mortgage Broker
Orion Mortgage, Inc.
10560 Wadsworth Blvd.
Broomfield, CO 80021
303-469-1254
800-404-0453
www.OrionMortgage.net
Don@OrionMortgageInc.com
Check the license status of any Colorado mortgage loan originator at http://eservices.psiexams.com/crec/search.jsp
Jim Smith wrote a column recently addressing a question so many future homeowner’s ask: Should I hire a buyer’s agent?
Listors Live to Sell to an Unrepresented Buyer, But Is It Really Best for You?- Jim Smith, 6/25/09, YourHub.com
I understand and have written many times about sellers who want to sell without the help of a listing agent, but it’s harder to understand a buyer who doesn’t want the help of a buyer’s agent. Yet that’s exactly the kind of buyer I met at an open house Saturday. . . (click here to read more)
The comments of your prospective buyer are interesting. I also understand the difficulty writing about this issue without sounding self-serving.
As a mortgage originator, I can comment about it without having any commission interest in the transaction. My observation is that you are both right. Your perspective points out why an agent working specifically with the buyer is important. Without getting too deep into the agency issues, I just know that I an negotiate better for someone else than I can for myself. It is very hard to keep emotion out of a personal transaction while it is relatively easy to deal objectively with someone else’s situation. I think it is useful to have a trusted advisor on my side in any large transaction.
From my perspective, the issues raised by your prospective buyer are valid, but they really go to the heart of choosing an advisor, not if I should use an advisor. I agree that many agents are poor listeners, but if I am buyers, I only have to find one who is a good listener.
I see the issue of talking to the listing agent is another agent selection issue. If I want to talk to sellers or listing agents, it shouldn’t be a problem if I simply select an agent who is OK with it. I would see it as an advantage to have an agent with me when talking to the listing agent or seller. A good agent would see or hear things I would miss, enhancing our negotiating position. I see no disadvantage to an extra set of eyes and ears.
The final point is the most difficult to overcome with someone who is not a professional negotiator. This is simply a lack of understanding of the power associated with not having final decision authority. The best place to see this in action is in almost any car dealer. People say they hate the process, bu the negotiating power is in the dealer’s hands because the dealer’s decision maker rarely sits down with the customer face to face. The dealer’s decision understands the power of using an intermediary, the sales person. If negotiating face to face was to the dealer’s advantage, customers would not experience the process of the sale person running back and forth to check with the boss.
Based On my experience and observations of others, the issue is not whether to use a buyer’s agent. The issue is which buyer’s agent to use. In my own last purchase, the listing agent offered me a credit not to bring in my own agent. I told him thanks, but I would use an agent I selected. When the transaction closed, we had negotiated a price concession roughly 10 times the credit that was offered plus valuable nonstandard terms. I don’t think the listing agent understood what was given in terms. My agent more than earned his commission. The listing agent was paid a very small commission for the size of the transaction. My opinion is that the seller made a costly choice by selecting an agent based primarily on commission.
Don Opeka – President
Licensed Colorado Mortgage Loan Originator MB100007878
Colorado Certified Mortgage Broker
Orion Mortgage, Inc.
10560 Wadsworth Blvd.
Broomfield, CO 80021
303-469-1254
800-404-0453
www.OrionMortgage.net
Don@OrionMortgageInc.com
Check the license status of any Colorado mortgage loan originator at http://eservices.psiexams.com/crec/search.jsp
Mortgage Window Shopping – 5 Tips for Prospective Home Buyers- by Amy Hoak (RISMedia), 06/26/09
After a recent spike seen in mortgage rates, some consumers are wondering whether they’ve missed their chance to refinance into an ultra-low rate.
Fear not: While the conforming 30-year fixed-rate mortgage hit a daily average of 5.81% last Thursday, it averaged 5.53% on Tuesday, said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. And it’s possible that rates could continue to fall.
“Predicting interest rates is like predicting who is going to win the World Series in January,” said Guy Cecala, publisher of Inside Mortgage Finance. That said, he calls the recent spike “somewhat of an aberration,” and expects rates will continue to drift down.
Why the recent run-up in rates? Over the past month or two, “the economic skies have brightened somewhat,” Gumbinger said in an e-mail, and the threat of “trillion-dollar budget deficits for the foreseeable future, the potential for significant inflation, and few clues as to how the government might extricate itself from intrusions into markets” created a landscape that was not appealing to investors.
But now, rates are retreating partly because inflation doesn’t seem as immediate a threat as investors feared, Cecala said. In his opinion, nothing fundamentally has changed in the economy over recent weeks to warrant the rate rise, yet he expects volatility through the remainder of the year as investors debate the economy’s health.
“Realistically, I think that the rates will drift under 5% again. It may take a month, may take two months,” he said.
It’s also important, however, to realize that extremely low rates likely won’t be around forever, said Bob Walters, chief economist of Quicken Loans, in a statement.
“Luckily, we have seen rates drop some this week, which should help many consumers breathe a little easier,” Walters said. “But the fact remains, the government’s plan of purchasing mortgage-backed securities cannot go on indefinitely, and when it ends, we will most certainly see a spike in rates. The hope is that the Fed can keep rates low long enough to kick-start a housing recovery. Whether that will work remains to be seen.”
“Volatility is the key word in the mortgage industry these days when it comes to rates,” said Kyle Kerwin, senior vice president of mortgage lending for Signature Bank of Arkansas.
Here are five tips for those shopping for a mortgage today, particularly those who need to refinance an existing loan:
- Get started on paperwork.Once you’ve found the mortgage professional you’d like to work with, get started on the necessary paperwork, said Dan Green, loan officer with Waterstone Mortgage in Cincinnati and author of TheMortgageReports.com. Rates move regularly, and if paperwork has been started your file can be processed more quickly when rates hit a low. When you start the application process, your credit score will be pulled and you’ll need to submit support documentation including W-2 forms and pay stubs. You might be asked for updated documents nearer to closing.
- Make sure your credit is in good shape.Check credit reports and fix problems as soon as possible, said Mary Curran, president of Highland Financial Mortgage Corp. in Northbrook, Ill. Even seemingly small charges can haunt a borrower: A forgotten, unpaid parking ticket, for example, can noticeably affect a credit score, she said.
- Decide at what rate it makes sense to pull the trigger.If you have a 6% rate now, rates would have to hit 5% or lower for it to make financial sense to refinance, Cecala said. Talk with your mortgage professional about what’s best for your particular situation.
- Stick to your guns. Once you determine the rate you’d need to get, it’s probably wise to stick to that decision. Consumers sometimes gamble that rates will go lower, and the plan can backfire if rates reverse course, Kerwin said. A couple of weeks ago, rates were close to 4.5% in his market, “and people wanted to hold out for an extra eighth of a percent.”
- Remember, rates are still good.Yes, rates could fall and create another record low as a result of a swoon in the stock market, a collapse of a major bank or a deepening of a recession, Gumbinger said. But it isn’t likely that many consumers would crave those economic shocks. “Why would anyone wish for those things again to simply get a rock-bottom, ultra low mortgage rate? If it means saving $250 per month on your mortgage but it costs you $50,000 in your 401(k), how could this be seen as any kind of benefit?” he said.
©2009, MarketWatch.com Inc.
Distributed by McClatchy-Tribune Information Services.
Read more: http://rismedia.com:80/2009-06-25/mortgage-window-shopping-5-tips-for-prospective-home-buyers/#ixzz0K24DeHek&C
Recently a customer called me asking, “Should I refinance?“ She had received information in the mail from her bank indicating they could refinance her for a low rate and save her tons of money. There were a few issues with this offer.
- The rate being offered was based on where rates were on April 2, 2009. Rates today are higher than they were then. This means that an actual refinance today would not be as attractive as what is described below.
- To meet their example, the customer would have to pay $4,841 in cash fees at closing. Either of us could roll the fees into the customer’s loan balance, but then the payment would be higher.
- If the customer made a $860/month payment on a $141,134 loan at 5.5%, their current loan, it would pay off in 325 payments. The total of the payments would be $279,500 and the interest paid would be $134,366.
If the customer make a lump sum payment of $4,841 (the bank’s closing costs) toward the present loan, it would reduce the balance to $140,293. If the customer then made payment of $1,138/month (the bank’s payment) on the current loan it would pay off in 183 payments. (3 payments longer than the bank’s proposal). The total interest paid would be $67,961, for an interest saving of $66,405.
With the loan the bank proposed, the customer would pay $59,706 in interest, plus $4,841 in closing costs for a total of $64,547. The bank’s loan would save the customer $3,414 (3 payments) over 180 months. I consider this a minimal savings considering the costs to achieve it and the time it takes to recover the up-front fees. In addition, the rate the bank advertised probably isn’t available today, so in the end the customer would be spending money for a refinance that gains them nothing.
Yes, the bank shows a big interest savings number compared to the present loan. Almost all of the savings comes from paying the loan off faster, not from the lower interest rate.
Many people are receiving offers like this in the mail or online via email. The best solution is to pay extra on your current loan instead of picking up a higher monthly payment and possibly a lower interest rate. If you simply commit more money to your month payment, you will accomplish most of the benefit of the refinance. Also, if your finances get tight, you can always return to the old payment at no cost. If you refinance, it will cost another refinance if you want to stop making the higher payments.
If you have questions about whether it would benefit you to refinance, please give me a call at 303-469-1254 or 800-404-0453. I will be grateful for the opportunity to be of service.
Don Opeka – President
Licensed Colorado Mortgage Loan Originator MB100007878
Colorado Certified Mortgage Broker
Orion Mortgage, Inc.
10560 Wadsworth Blvd.
Broomfield, CO 80021
303-469-1254
800-404-0453
www.OrionMortgage.net
Don@OrionMortgageInc.com
Check the license status of any Colorado mortgage loan originator at http://eservices.psiexams.com/crec/search.jsp
